The economic situation in Europe has pushed the need for reorganisation in many businesses. Back office processes, such as HR, finance & accounting and procurement, are often targeted as prime sources for cost savings. But are cost savings the real objectives and can they be achieved easily in this way? Read on…
Once you have decided that centralization through a shared services centre (SSC) is the thing to do, how do you ensure that the journey does not break havoc in your organisation? Our experience shows that there are five steps to back office transformation through shared services. They are:
• Developing the strategic vision and business case for process transformation
• Establishing the feasibility of implementing shared services
• Designing and developing the delivery model and IT infrastructure
• Implementing the operational change, and migrating processes to the new environment
• Stabilizing the new environment and implementing continuous improvement.
Throughout the process, it’s critical to ensure that all the necessary expertise and information are in place to support the decision-making at every stage. The right solution will be influenced by a host of internal and external factors ranging from regulatory and taxation issues to the strength of the overall business case, and from project management skills to cultural and people factors. All these building blocks need to be assembled correctly for successful implementation of a SSC.
What are the main success factors for shared services?
The change in skill sets required is more substantial, more material, than most people realise.
There is a lot of attachment, especially within the HR or the F&A function; the business leaders have quite an attachment to people within their area. Their willingness to trade those people for people with who might have more appropriate skills is a major challenge.
Therefore, as has emerged from many surveys conducted by the SBPOA, the main success factor is a strong support from the organisation senior management.
Considering the personnel skills required for a Shared services centre, the primary skills are the broader competencies such as consultancy skills and business skills. The lack of business skills both internally and externally (internal being cross functional skills and external being knowledge of business in general) is the biggest barriers to an effective back office function (and I would say the same in relation to shared services). There are obviously additional, particular skills across regions i.e. language and knowledge and the ability to respond to enquiries or service needs from different countries.
The next generation of shared services
Centralization will define the future of the organizational model: most companies will establish a centralized functional framework. Activities that remain outside of the control of the center-led organization will generally be necessary in only two situations:
• when selected activities are unique to a business unit or site (consultative HR activities, for example)
• when structural limitations (such as regulatory, social and operating differences) demand it
Location is irrelevant, and hence, even more relevant: shared services will be mainly managed according to a virtual model. Only senior HR or F&A leaders will stay in the headquarters, with the remaining functions either outsourced, sent offshore or managed at a low-cost and low-wage location.
Technology will drive opportunity: the vision of “lights-out processes”, in which a company needs only a few senior process leaders to monitor its highly automated processes, is still on the horizon. Self service portals for automating HR or finance processes are already gaining ground and are widely used across Europe.
Business Process Outsourcing (BPO) will become a functional necessity: as service providers mature, outsourcing parts of processes or the entire function will become increasingly commonplace. A specialist that provides services to many has a far lower cost than an internal function that provides the same services to a few. Progressive shared services will integrate BPO into their business strategy, thus optimizing the make-versus-buy decision.
The best shared services will become preferred providers: some internal centres, such as GE Capital, Xerox or the shared services for HP, have started offering their services to third parties, therefore commercializing their offer outside of the originating company. In the future we will se more of this type of activity.
The scope of opportunity will expand: on average, only 20% of the total back office functions are consolidated in a global corporation. Expanding the shared services scope to the remaining 80% is becoming the new challenge.
Compared to most other transformation strategies, the success rates of shared services are remarkably high. The risk, however, is the temptation to let well enough alone. Constant attention to shared services performance and evolution will not only help companies to achieve all possible benefits, it will also help uncover new opportunities. As its growth over the past decade illustrate, shared services is an evolving concept. And as it changes, so do the potential rewards it offers. Those companies that are constantly ready to tap into these emerging benefits will ultimately enjoy the biggest strategic gains. These gains will very often consist on service quality improvements, on top of financial savings. Looking forward, shared services organizations will serve an increasingly important role for senior managers striving to deliver ever-growing shareholder value.
by Luca Segantini
A longer version of this article has been published in European CEO magazine in 2005